Real estate short sale definition
Don't be embarrassed if you don't know what a short sale is. This article will explain what a short sale is and whether you are a good candidate for one or not.
If you owe more than your house is worth, you may need to do a real estate short sale.
A short sale means that you sell the property. But you get a lower price than what you owe. Then you go to your lender, or both lenders if you have two loans. You get them to approve the sale of your house.
So there are two parts to a real estate short sale:
Sell the house much like you would any other house
Get the lender to approve the sale
Getting a real estate short sale approved
The lender now has to approve the sale. The buyer is waiting to close. Now it's time to go to work and negotiate the short sale with the lender. Or with both lenders if you have two (occasionally even three.)
This is where it gets tricky. You want to have things like:
- A hardship letter
- Proof of your financial situation
- The offer
- A brokers' price opinion on the property showing that the offer isn't too outlandishly low
- Pictures and information on the property including work that may need to be done to fix it up
The purpose of this is to convince the lender to approve the real estate short sale.
Tips For Writing A Financial Hardship Letter
Regardless of the specific situation, ther are a few important guidelines that you should follow if you want to draft a financial hardship letter that will be taken seriously:
Keep It Short
Keep your letter short and to the point. Try not to exceed one page. A long, wandering letter will water down the essence of your case and will lose the reader.
Make It Personal
Make sure that you personalize your letter as much as possible by including details about you and your family that will get the reader to identify with your situation as a fellow human being.
Clearly State Problem
Early in your letter, summarize the specific situation that has prompted you to write the letter. Provide more details in the later paragraphs.
Give Enough Information
Your letter should provide enough detailed financial and related information so that the reader can easily understand your situation. Attach clarifying documents as necessary including: cash flow statements, bank statements, income tax statements, invoices, letters, etc.
Make Your Request
In the subject-line and the first paragraph of your hardship letter, state exactly what you are requesting. Reiterate this request in slightly different words at the conclusion of the letter.
Be Humble and Thankful
To reach the point where you have to write a financial hardship letter means that you are in deep financial trouble and this is basically your last resort. Don't get into any blame games or side issues. Be respectful and thank the addressee in advance for considering your situation.
Short Sale vs. Foreclosure: Which is the Better Option?
Losing your home to foreclosure due to an inability to keep up with your monthly mortgage payments is one of life’s most unpleasant experiences. It is also an event that keeps on affecting you long after your home is history by devastating your credit score. Regrettably, most people cannot be 100% sure that they will remain safe from foreclosure because they can’t foresee the unexpected. Occurrences such as serious illness, a major accident, divorce or job loss can happen to anyone. So it’s a good idea to understand the available alternatives should the worst occur.
Of all available options, foreclosure is the worst
The inevitable result of a foreclosure is the lender taking your house. Not only will you lose your house, but the lender can get a judgment against you for the arrearages you owe plus his costs for the foreclosure action. If that isn’t enough, your credit report will be in terminal condition for many years to come, worsening an already bad financial situation and making it very difficult to obtain any other kind of credit. There is no upside to foreclosure. It should be avoided at all costs.
Consider a short sale when foreclosure seems inevitable
A short sale is a popular option for homeowners mired down with financial problems. In this case, you would sell your home for less than what you owe your lender; the biggest problem you will face is getting your lender to agree to a short sale. In many situations, they will not. Experts advise pursuing this option the minute you realize that you are falling behind in your payments and most likely won’t be able to catch up. The longer you wait and the greater the amount you are in arrears, the less likely it becomes that your lender will even be willing to discuss a short sale.
short sale has disadvantages too
While a short sale will save you from foreclosure, it will also have a negative effect on your credit score, frequently lowering it by as much as 200 points. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current. Perhaps equally distressing, the Internal Revenue Service frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. There is new federal legislation called the Mortgage Forgiveness Debt Relief Act 0f 2007 that just went into effect on January 1st, 2008. The new act essentially eliminates this problem.
Almost any option is better than foreclosure
Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, “What can I do?” Instead, consider that short sale and check with your lender before your options become more limited.
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